When I finally passed the threshold from financial youth to adulthood and became an 18-year-old man, in the eyes of banks, I was financially responsible enough to have my own credit card. It was through my poor decisions that I ended up with a greater amount of debt by the time I was 20 than I could comfortably handle.
My first credit card was from a bank which advertised heavily that they would accept just about anyone, no matter their credit history. Since I had no credit history due to my youth, I found myself with a credit card. However, they were giving myself only a $1,000 limit. Since this was the early 2000s, I would use it to buy compact discs and fill my car with gas at $2 a gallon. I would occasionally treat my friends to dinner, usually from fast-food establishments, which I could afford to do now.
It was when I applied for a credit card with a competing bank, who also offered to give a credit card to just about anyone, that I found myself getting in over my head. This bank gave me a credit card five times what my first one was. I was often treating my friends to dinner, now dining at restaurants, which I thought I could afford. It wasn’t until the bills came that I realized I was living in excess of what I could afford. After everything was paid off, a few late payments and increased interest rates later, I spent nearly twice as much as I would have otherwise. And the hit that my credit report took from my financial mishandling remained with me for years and, somewhat thankfully, kept me from getting another credit card for quite some time.
For anyone thinking of getting their own credit card for the first time, I offer these words of advice:
Know everything about your credit card and the bank giving it to you! – Having a credit card should not just be a bank trusting you to pay them back, it should also be whether or not you can trust them. How much do other people trust this bank? What happens to my interest rate after the first sixth months or a year down the road? If something happens to me and I can not afford my monthly payment, what happens to my rate then? These are all questions you should know the answer to before you apply for a credit card with any bank.
Remember that piece of plastic is still your money! – It might feel like you aren’t spending anything at all when you go to your wallet and, instead of pulling out paper, you hand the cashier a credit card. What you are spending is still coming out of your pocket, and down the road it may cost you more than you first thought.
Don’t buy what you don’t need and can’t afford! – Credit cards can offer great benefits, like cash back and points you can use for travel, so they can be great to use on everyday spending. But if you see something you suddenly want because you can afford to put it on your credit card, just think about whether or not you will want it three months from now when you are still paying it off. Personally, I have wanted a new bicycle for a few months now, but the one I want is a little out of reach for myself financially. When I can afford it, I’ll have paid for it all up front and won’t have to think about the cost of it any more. Saving up for something can be one of the best ways to teach yourself responsible financial planning.